In 1993, President Clinton went to Washington determined to make life
better for people who work hard and play by the rules. He had an economic
strategy to deal with unemployment, which had idled more than 7 percent of our
workforce. And he delivered. The jobless rate has dropped to just over 5.5
percent. He promised 8 million new jobs in his first term. And he delivered.
The figure now stands at eight and a half million, and counting. He promised
to cut the deficit which had ballooned under his predecessors. And he
delivered. By the end of this year it will be half of what it was when he took
office.

Companies are doing well. Last year, the Fortune 500 enjoyed an average
profit rate of 13 percent.

Working families are doing better than they have for a long time. The
long slide in median wages has been halted. The poverty rate is dropping. And
America is finally growing together again. The most recent available data shows
that in 1994, every family income group, from the richest to the poorest,
experienced a real increase in their incomes for the first time since 1989.

And things are beginning to look up here in California, too. In the
12-month period ending in February, this state added more than a
quarter-million new jobs. That's on top of another quarter-million jobs that
were added in the previous 12 months. That is a half-million new jobs. We're
talking about a dramatic turnaround. And although unemployment in California
is still higher than the national rate, it is down two whole points from 1993
and headed in the right direction.

Clearly, the Clinton strategy has succeeded in jump-starting the economy
and setting the stage for greater numbers of average working Americans to
prosper in what the President has called the "Age of Possibility."

But the President has also said that this is a record to build on, not sit
on. Over the long term -- since 1979 -- about 97 percent of the average
increase in household income has gone to the top fifth of the nation's
families. Everyone else -- four-fifths of American households -- has shared
just 3 percent of the income gains.

Thus, the President has defined the great challenge before us -- the
second stage of economic renewal -- as restoring wage growth and economic
security for the majority of working families, and making the American dream of
opportunity for all a reality for all who are willing to work for it.

In spite of the economic upturn and restored upward mobility for many
families, millions of working Americans aren't sure what they're going to get
out of the new, high- tech, global economy. This is an era of extraordinary
dynamism and change, similar in scope to the industrial revolution that moved
people from farm to factory. And like that earlier transition, this one is
perilous for many people.

Left unchecked, economic insecurity can undermine the political
preconditions for continued business prosperity. If too many of our people
feel excluded from the upside gains of a dynamic economy and disproportionately
burdened by its downside risks and costs, they eventually will support
policies that sacrifice growth in favor of economic security -- policies like
trade protection, capital controls and inflexible rules of employment. Or,
worse yet, they become susceptible to insidious efforts to shift the blame for
their ills to those who are least culpable but easy targets of rage --
immigrants, welfare mothers, affirmative action, to name a few. Left
unchecked, the widening disparities in income and opportunity can undermine the
coherence of our society. A society too sharply divided between winners and
losers loses its moral authority.

We know that if this is the case, we will not be able to succeed as
an economy, or as a society. This situation is not sustainable. But what
should we do?

The solution does not lend itself to easy, "bumper sticker"
strategies. As we have seen, anyone can get on the soapbox and exploit the
anxieties of working people and their fears about the new economy. But that's
not going to keep this nation on the right course. That won't help more of our
people move safely into the new economy, where they can prosper.

We must be candid about what is happening here. This new era of economic
dynamism and possibility marks the end of the old era of stable mass
production. We have moved from the farm to the assembly line, and are en route
from the assembly line to the computer. Information technologies, combined
with global trade and worldwide investment, have shifted the economic ground
we stand on. I use this metaphor advisedly in California.

Tens of millions of Americans are at risk of being trapped on one side of a
great chasm that has opened between the old economy and the new. There are
many new jobs, but the good ones lie tantalizingly beyond the grasp of many
working people. Those jobs call for more than the energy, good sense, and
determination that most Americans possess in abundance. They also require
technical or problem-solving skills, and the capacity to continuously acquire
new skills.

Machinists are being supplanted by the operators of computer- controlled
machine tools. Garage mechanics are being replaced by automotive technicians
who can diagnose and repair the electronic gadgets that control today's cars.
Office clerks are giving way to office technicians skilled in using computers
for storing and updating data. Cashiers can become inventory-control
specialists.

In every advanced economy, the job market is rapidly shifting in favor of
people with such skills -- and against people without them. The earnings of
people with the right skills are rising, while the earnings of those without
them are dropping -- or they simply become unemployed. As we all know, in a
dynamic economy no one has job security. Those with skills can still command
employability security -- the security of being reasonably sure that if they
lose their job they can get a new one that's as good. The challenge is to
extend this new kind of security to those who remain trapped in the old economy
-- because they don't know what skills are in demand, or can't afford the
costs of building skills, or feel too old to learn, or cannot find ways to
sustain their families as they navigate economic transitions -- rightly fear
that if they lose their jobs, they will never regain the lost ground. We have
to make the new economic dynamism work for more of our people.

That's the first major change now occurring in our economy. The second
has to do with the disappearance of the implicit social compact that used to
bind companies with their workers and their communities.

This compact, which survived well into the 1960's and 1970's, held
that so long as a company earned healthy profits, employees could count on
secure jobs with rising wages and benefits, and communities could count on a
steady tax base. When the economy turned sour, employees might be laid off for
a time. But when the economy revived, the work would return. The very term "layoff"
suggested a temporary separation.

The compact was enforced in several ways. Unions played an important
role. But it was primarily the public expectation -- the unspoken but
widely-accepted norm -- that when a company did well, its employees and
community would also do well. For a business not to share the benefits of its
success would be unseemly.

That expectation has lost its force; that compact has come undone. To put
it very simply, as Hollywood movies evolved over forty years from George
Bailey's Bedford Falls in
It's a Wonderful Life to Gordon Gekko's
Wall Street, the structure of the American economy was doing much the
same thing.

What changed? For one thing, competition for investment dollars.
Vast amounts of capital can now be moved from place to place at the push of a
key on a personal computer. Investors face an ever-wider array of choices of
where to put their money. The result is "electronic capitalism" -- a
worldwide system for immediately redeploying financial assets to where they
can earn their highest return.

Today, any chief executive who hesitates to sacrifice all else to maximize
short-term profits can risk trouble. By the same token, a chief executive who
subordinates all else can reap handsome rewards. Even the term "layoff"
no longer means what it used to. Most layoffs are now permanent. We need a
new word to describe what the phenomenon is. Perhaps we should call them not
"layoffs" but "cast-offs."

The sum of these two momentous changes presents this nation with a great
paradox. Just at the time when the workforce is most in need of help adapting
to a new economic system, the drastic narrowing of the sense of corporate
mission has sharply limited the private sector's capacity to respond to that
need.

A narrow economic calculus discourages the necessary investments: The
nation as a whole is better off when employers teach their workers basic or
industry-wide skills beyond what is required to function effectively in their
current jobs; the national economy as a whole is more flexible and productive
when employers see to it that workers who are no longer needed get trained for
and placed in new jobs. Yet because the company doesn't reap the full benefits
of these sorts of investments in the short term, CEOs may be reluctant to make
them to the extent that society needs.

As corporations have focused more and more exclusively on increasing
shareholders' immediate returns, the consequences have become obvious. The
stock market has soared while pink slips have proliferated, health care and
pensions have been cut, and the paychecks of most employees have gone nowhere.
Top executives, talented entrepreneurs, and Wall Street intermediaries have
never done as well. Workers without adequate education and skills, or with
outmoded skills, are in free fall. This situation is not sustainable. But what
can be done about it?

Too many individuals and families are trapped. Government -- society --
must respond, but cannot do it all. So, to what extent can we rely on the
private sector? Do companies have obligations beyond the bottom line? Do
they have a duty to their employees and their communities? Over the long term,
do the interests of all stakeholders -- shareholders, employees, and
communities -- begin to converge? And if they do, can we build a new social
compact -- a new corporate citizenship -- on the basis of that convergence?

The President has started a national discussion on these vital questions.
And Americans from all walks of life -- politicians, community leaders and
average working people and CEOs -- are now struggling to answer them.

Americans haven't abandoned their expectations of corporate citizenship.
Last month, a poll sponsored by Business Week found that 95 percent of
Americans believe companies have responsibilities to their employees and their
communities that go beyond making profits. Noting the failure of wages to
rise at a time of robust productivity and profit gains, the magazine's editors
wrote: "The time has come to share the wealth."

Recently, President Clinton outlined five specific ways that business can
exercise good corporate citizenship, enhancing long-term profits while at the
same time helping more of our citizens prosper in the new economy. In each of
these areas, society as a whole must do what it can to help our fellow
citizens help themselves across the great divide. Government can also set
minimum standards of business behavior. But businesses must make every effort
to exceed the minimum.

First, businesses can institute policies that help their workers
fulfill their family responsibilities -- policies such as flexible work
schedules, help with child care and generous leave for family and medical
reasons.

Early in this term President Clinton proudly signed the Family and Medical
Leave Act, which requires employers to give their workers up to 12 weeks unpaid
leave for the birth of a child or to care for an ailing relative. But some
companies are proving that they can go beyond the minimum the new law requires
-- and can boost the bottom line at the same time.

Procter & Gamble, for instance, allows up to a year of maternity leave
for new mothers as well as subsidized childcare and up to five years of reduced
work hours so mothers can care for their young children at home.

The evidence shows that these kinds of commitments pay for themselves in
improved employee morale and productivity. Johnson & Johnson employees
missed 50 percent less work after flexible work arrangements were instituted.
A division of another major corporation found that flexible work schedules
reduced absenteeism by 30 percent.

The second way companies can be good citizens is by providing their
workers healthcare and pension benefits.

Here, too, government has a role to play in setting minimum standards. This
administration is encouraging Congress to pass legislation barring health
insurers from cutting off workers when they change jobs or when someone in
their family gets sick. Last Thursday, the President announced a package of
pension reforms enabling small businesses to more easily provide pensions, and
helping workers carry their pensions from job to job.

But with millions of American workers lacking both health care and pension
coverage, it is clear that businesses must do more than meet the bare minimum
-- and it's clear that top-flight companies can, and do. Starbuck's, the
Seattle-based coffee retailer, has been widely recognized for its practice of
offering full health insurance benefits and its 401(k) plan to its part-time
workers.

Thirdly, businesses should invest in their "human capital" -- in
upgrading the skills of their workers -- which are so critical to raising
incomes, increasing productivity, and growing the economy.

Once more, there's an important but limited role for government. We are
working to change the nation's unemployment insurance system -- originally
designed to provide income support during temporary layoffs -- into a
re-employment system designed to get jobless workers the training they need and
move them rapidly into new jobs. Our "GI Bill for America's Workers"
calls for the consolidation of federal job-training programs into vouchers
that unemployed or low-wage workers can use at community colleges or technical
schools to get the training they need. The President is also proposing to give
families a $10,000 per year tax deduction to offset expenses for university
education or job training.

But the business role is at least as critical, and there is strong
evidence that doing right by employees is also good for the bottom line. One
study has found companies that introduced formal employee training programs
experienced a 19 percent larger rise in productivity than firms which did not
train their workers. Another shows that raising the average education of your
workforce by one year helps them become as much as 12 percent more productive.

Some companies have received that message loud and clear. Granite Rock,
the construction materials supplier in Watsonville, California, invests nearly
$2,000 per employee annually in training -- nearly 13 times the industry
average. Workers at Cin-Made, an Ohio firm that makes specialized packaging,
receive extensive on-the-job training and receive additional pay for acquiring
advanced skills. And Harley-Davidson, maker of the legendary motorcycles, has
established an on-site learning center for its employees.

These investments in skills have paid off for each of these companies.
Granite Rock has improved customer service and raised its productivity to 30
percent above the industry average. Cin-Made has seen its on-time deliveries
increase by nearly a third. And, after some tough years, Harley is back on top
of the motorcycle market.

The fourth thing businesses can do is to work in partnership with
their employees -- giving them a greater voice in the enterprise and sharing
the benefits of the good years, not just the burdens of the bad.

Government can and should set a decent baseline. We are determined to
raise the minimum wage to a decent level so that full-time workers can pull
their families out of poverty. And we should maintain the expanded Earned
Income Tax Credit that helps millions of low-income working families.

But business can do a great deal more to reward their employees for their
abiding loyalty, dedication and hard work -- as many companies have
demonstrated. Intel, for example, is known far and wide for its strong fringe
benefits, deferred profit-sharing plan and commitment to redeploying workers
instead of laying them off. Instead of cutting jobs during slack demand for
its speaker cabinets, Harman Electronics -- located nearby in Northridge -- has
an "Off-Line Employment" program to keep its employees on the job
making alternative products from scrap wood.

And perhaps the story of the year came out of Methuen, Massachusetts last
Christmas, after a tragic fire destroyed the Malden Mills textile factory and
with it the security and the hopes of the 2,400 people who work there. Three
days later, the owner of the firm, Mr. Aaron Feuerstein, appeared before his
employees and told them he would not only rebuild the factory and rehire every
one of them, but he would also continue paying them their salaries and their
benefits during the shutdown. Today, Malden Mills is well on its way back to
full operation.

The experiences of many companies show that allowing workers to share the
gain as well as the pain -- and giving them a genuine voice in the enterprise --
is a successful strategy that pays big dividends over the long term. Layoffs
may be necessary, of course, but companies that treat their workers as assets
will use layoffs only as a last resort, and only after giving their employees
every opportunity to find new, productive work.

Finally, every company has a duty to provide a safe workplace. No one
should have to put themselves at risk just to put food on the table.
Government must be the cop on the safety beat. But the Labor Department's
Occupational Safety and Health Administration can inspect only a tiny fraction
of the nation's 6 million workplaces. It is essential, then, that businesses
do their part to reduce workplace injury and death.

Companies like DuPont have discovered the benefits to be gained from a
strong commitment to improving worker safety and health. Through its
participation in a Voluntary Protection Program run by OSHA, DuPont has brought
its injury rates down to 87 percent below the industry norm, thereby reducing
its workers' compensation payments, related medical costs, and employee
turnover costs.

So these are the five elements of good corporate citizenship --
family-friendly policies, health care and pensions, training and education,
working in partnership with employees and providing a safe and healthy
workplace. Five things companies can do to help bring about a better future for
all Americans. Five steps that build upon the measures this Administration
already has taken or is seeking to take to enable working people to better
balance work and family, to have health care and pension security when they lose
a job, to gain new skills, to be paid a decent livable wage, and to work
safely.

Good corporate citizenship also means respecting the need for minimum
standards, and not using financial and lobbying muscle to eradicate them. CEOs
cannot have it both ways: Lobbying furiously against a higher minimum wage,
full enforcement of health and safety laws, health care, and family-friendly
workplace policies, while at the very same time insisting that their job is
simply to respond to the dictates of the free market.

After I leave you here, I will be paying a visit to one local company
that has made great strides in all five of these areas. Rhino Records may be
best known for its popular re-issues of the music we grew up on. But Rhino
employees will tell you that the company has great flex-time and family leave
policies, good health and pension plans, a program to cover the cost of
job-related tuition, profit sharing and bonuses, and an employee emergency team
to address safety concerns.

On Thursday, I'll be in Portland, Oregon to drop in on Connor Formed Metal
Products, another firm that is doing a lot of good things for its workers.
Connor has gone the extra mile in providing an Employee Stock Ownership Plan,
performance bonuses, profit sharing, health insurance and on-site job training
classes.

Rhino and Connor are two more of the companies that are doing right by
their workers, their communities and -- in the process -- their own bottom
line. We ought to be encouraging more businesses to follow their example.

Some cynics will sneer at these principles. They'll say that business
leaders can't be expected to care about the economic fate of their fellow
Americans.

I just don't believe that. The American spirit of innovation is look for
a better way -- and to relentlessly pursue a better world. That is the ideal
that led Ron Brown and those 12 executives to their deaths in Croatia a couple
of weeks ago. The idea that bad citizenship makes good business sense would be
seen as bizarre by most Americans, including most business leaders, throughout
most of our country's history. Everybody remembers GM's "Engine Charlie"
Wilson's creed that "what's good for General Motors is good for America".
But we often forget the second part of that declaration -- "And vice
versa." The common interest of corporation and culture was a matter of
simple common sense to most business people, until recently. And I'm
confident that we'll soon dismiss the extreme notion that business can prosper
while the middle class withers and the civic culture decays. We'll return to
the mainstream view that corporations are, in a sense, citizens of our
American community, that citizenship carries duties as well as rights, and that
there is and must be an ethical basis to doing business in America.

It is already apparent that the vast majority of Americans -- including
many of our nation's business leaders -- still believe that there should be a
social compact. There are a great number of companies doing the right thing
today. Over the long term, doing right is consistent with doing well. As a
society, we must encourage others to follow their lead.

That is the new corporate citizenship -- a new idea that is really a
return to a very old, very basic, American norm. It is a necessary complement
to the measures we as a nation must take to ensure that all Americans have a
fair shot at sharing in our prosperity.

Let us continue to have a national conversation about corporate
citizenship. Surely, further discussion about the proper role of the
corporation at this unique moment in history is no less important than the
discussion we have been having about the proper role of government. In this
era of smaller government, at a time when so many are foundering in the face
of record profits and a soaring stock market, the failure of the private sector
to respond imperils our nations' continued prosperity and stability.

All Americans have an enormous interest in sustaining the openness and
dynamism that has served our economy, as well as the faith of those who labor
in it. For the sake of our nation's future, let us work to rebuild and sustain
that faith.